Henderson to Pay Record $6.5 Billion for Hong Kong Land Site

(Bloomberg) -- Henderson Land Development Co. won a prime land plot along Hong Kong’s famed Victoria Harbour with a record-breaking bid of HK$50.8 billion ($6.5 billion) as it expands its portfolio in the city’s most important business district.

The estimated price for the site in Central ranged from HK$37 billion to HK$55 billion, according to property analysts surveyed by Bloomberg. The sky-high price makes it the most expensive plot ever sold in a government tender, surpassing the previous record set by Sun Hung Kai Properties Ltd. at HK$42 billion. 

Given its prime harbor-front location, the government took into account designs submitted by bidders before awarding the site, the first time it looked beyond the price being offered. Bidders’ proposed design and premium amount carried equal weight in the government’s decision.

The site is located between the city’s iconic skyscraper International Finance Centre and the observation wheel along the Victoria Harbour and includes space currently occupied by the General Post Office building. Measured at 47,967 square meters (516,310 square feet), the land can yield a maximum floor area of 150,000 square meters.

Henderson proposes to build three buildings with the block closest to the harbor to be multifunctional, while the other two will focus on office space, the government said in a statement. The developer has to complete both sections by the end of 2027 and 2032 respectively with the plan including a platform for the public that provides a lawn, jogging routes and outdoor space.

The government said it wants the site become a new landmark for Hong Kong that is “exemplary in terms of people-centric design and emphases on sustainable and urban design considerations.” Among the six bidders, four did not pass both the requirements for price and design, the government said without naming the developers.

Even though the successful sale is a vote of confidence in the city’s commercial real estate market, the future landlord may find it difficult to attract tenants as demand shows signs of weakening.

Global financial firms, traditionally a major source of tenants, have been cutting their office footprint as flexible working arrangements grow in popularity. BNP Paribas SA and DBS Group Holdings Ltd. are among banks to cut their space in the past year.

As hybrid work becomes a permanent policy for many companies, demand for office space will inevitably decrease in the future.

Rents are expected to fall 7% in 2021 as tenants seek to reduce costs, according to Colliers International.

To make things worse, office supply in Central is poised to increase in the next couple of years as construction of new developments finishes. Henderson has a 35-floor tower due for completion in 2023, while CK Asset Holdings Ltd. has an adjacent project slated to finish in the same year.

The vacancy rate in Central is already climbing. Empty offices in the area accounted for 7.3% of total space in April, up from 5% a year earlier, according to Jones Lang LaSalle.

©2021 Bloomberg L.P.